Debt needs sorting now
Reducing debt makes it into the top five most popular New Year’s resolutions, along with losing weight and getting fit. As you contemplate your money resolutions for 2013, it’s important to make sure you have the basics sorted.
If there’s just one rule for managing your money, this is it. If you’re living from pay to pay, and not reducing your debt or growing your savings, you need to take control with a money plan. A good place to start is to track your spending over a couple of weeks or a month – then use that to create your budget. You might be surprised where your money goes.
If you have dumb debt – that is, high-interest debt such as debt on a credit card or store card which could be avoided, your priority should be to get rid of it as fast as possible. List your debts in order of their interest rates and put as much as you can towards the one with the highest rate. Once you’ve paid that off, put the extra money towards the next debt with the highest interest rate. It’s the fastest way to become debt-free – providing you avoid taking on any new debt!
If you haven’t saved regularly before, starting a savings habit might seem hard. The trick is not to worry about starting small – even $20 a week will grow quicker than you think. Review your budget and see what you can afford to save regularly. Open a savings account and set up an automatic payment that goes into it as soon as you get paid. Making savings automatic will help you build a long-term habit. As well as saving for the shortterm, make sure you’ve set some long-term savings goals, like saving to buy your first home and for retirement.
Nothing disrupts a well-planned budget like unforeseen expenses such as major car repairs or medical bills. Saving up for an emergency fund is an important goal. Ideally, you should aim to save up the equivalent of three months’ expenses.
If your circumstances have changed recently, you’ll need to check that your insurance still meets your needs. Make a date to review your insurances each year.